All You Need to Know About Buy-to-Let Mortgages

The surveyors believe that buyers’ confidence in real estate market has begun to rise after Brexit. The market had stumbled after Britain’s exit from EU. The Guardian’s report published in September 2016 states that buy-to-let rents have increased by all time high, reaching an average of £846 in England and Wales. In contrast, The Telegraph’s report says that the prices of houses will not increase in London until 2019.

Considering these facts, it is quite evident that this is the high time to purchase real estate properties in UK for buy-to-let. If you are interested in such kind of an investment then this post will help you along the voyage.

What is Buy-to-Let Mortgage

In buy-to-let mortgage, the borrower borrows money to purchase a real estate residential property for letting it to the tenants. Although buy-to-let mortgage is used to buy residential properties, however, considering its nature of purchase, it is included among business loans. Therefore, the interest, transactions, and related fees are usually higher than other residential mortgages. Usually, the borrowers pay up to 15% of the loan amount as down payment.

Is Buy-to-Let Beneficial?

Buy-to-let is one of the ideal types of investments if you have repaid your first mortgage. The standard amount of rent is 125% or 130% of the original mortgage payment. This percentage with Class A or Class B type tenants allows you to make the mortgage payments hassle-free, including the vacancy period and maintenance costs.

Is It Easy to Get Buy-to-Let Mortgage?

As mentioned earlier, buy-to-let mortgage does not work like other residential mortgages. The first mortgage for personal residence is obtained considering the credit score and salary of the borrower. In buy-to-let mortgage, the loan is approved after considering the credit report as well as rent to interest calculation, which is 125% of the rent. Furthermore, the borrower’s annual income should not be less than £25,000. This income does not include the rental income.

The adults can get buy-to-let mortgage. The maximum age is 75 years upon loan maturity. You may find some lenders that provide loan maturity age extension for up to 85 years.

Buy-to-let market was not a part of Financial Conduct Authority’s regulation before March 2016. However, the government has recently approved its regulation under FCA’s rules.

Interest or Principle?

Two strategies work for the repayment model of buy-to-let mortgages. The first one is interest only repayment. The interest-only repayment model is mostly chosen by the professional and commercial investors. By repaying the interest, they build a good portfolio of the property, which helps them build home equity and sell the property at higher rate. The non-commercial investors or second-time home buyers mostly choose the second route in which, the investor either pays the principle first or pays the principle and interest by distributing it in the monthly payments.

Remember that the landlords will pay at least 3% tax duty on real estate purchases. The law became applicable from April 2016.

The Essential Tips for Buy-to-Let

The lenders prefer high monthly rents and huge down payments. Following tips will help you make the right buy-to-let deal.

Research the Current Market

It is highly important to research the current market. This strategy has become more important especially after Brexit. Some properties come with minor risks whereas, some properties come with long term drawbacks. Sometimes, a small investment works well in regions other than those of your choice. The most important point here is to remember that renovation alone cannot add value to your property. Many first time buy-to-let investors flip properties and renovate to get high returns. Another important tip is to compare the mortgage prices. You can use reputed and reliable platforms like Quiddi Compare to compare the mortgage rates.

Manage the borrowing

Financial management of an investment is the key to higher profits. When you borrow the money, make sure to multiply the rental income into monthly and yearly totals. A breakdown of the total will allow you to evaluate the total yearly earnings, which include interest, repayments, maintenance costs, vacancy mortgage, and other costs. If you choose the principle-only repayment then the interest will add up with the unpaid principle and multiply over time. In this case, you may be using the rental income to repay the mortgage but you may be lacking with some money to pay the interests and other costs.

Understand What Your Customers Need

Do you have a property and you want to sell it a for higher price? Is the market down and you want to put up the property on rent for some time?

The customers today prefer small-sized newly built properties over the older ones. Before you take the mortgage, make sure to investigate your property.

Start Small with One Specialty

Many people build condominiums and multiple house buildings to rent them. When you convert a building into bigger business, the tax and other costs also increase. Furthermore, you have to deal with different kinds of tenants. The experienced people may succeed in this kind of investment. But if you are not experienced, then you should consider purchasing one small building and specializing in it.

Buy-to-let properties have different kinds including deluxe properties for executives, multiple residencies for students, and small houses for families. You can compare the financial numbers by using Quiddi Compare. From bank accounts, buy-to-let, mortgages, credit cards, long-term loans, payday loans, and more, Quiddi Compare is a one-stop-shop for all kinds of comparisons and information.

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